Consumer Spending Rises, Personal Income Flat

U.S. consumer spending rose more than expected in December, but weak income growth suggested the economy could cool off a bit in the first quarter.

The Commerce Department said on Friday that consumer spending increased 0.4 percent after rising by a revised 0.6 percent in November. Spending was previously reported to have increased 0.5 percent in November.

Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, rising 0.2 percent in December.

The figures were included in the advance fourth-quarter gross domestic product report published on Thursday and confirmed the strong momentum in spending at the end of 2013.

Consumer spending recorded its strongest gain in three years in the fourth quarter, helping to lift the economy to a 3.2 percent annual growth rate during that period.

However, income was unchanged last month after rising 0.2 percent in November, possibly reflecting the impact of the end of jobless benefits for about 1.3 million long-term unemployed last month.

Income at the disposal of households after adjusting for inflation fell 0.2 percent. That move could take some steam from consumer spending in the first quarter.

Weak income growth against the fairly strong spending backdrop means less saving. The saving rate - the percentage of disposable income households are socking away - fell to an 11-month low of 3.9 percent in December.

It was at 4.3 percent in November.

In light of the firming demand, inflation increased a bit in December. A price index for consumer spending rose 0.2 percent after being unchanged for two consecutive months.

Over the past 12 months, prices rose 1.1 percent, compared to an advance of 0.9 percent in November.

Excluding food and energy, the price index for consumer spending rose 0.1 percent, rising by the same margin for a sixth straight month. Core prices were up 1.2 percent from a year ago, after rising 1.1 percent in November.

Both inflation measures remain stuck below the Federal Reserve's 2 percent target. That suggests that the Fed, which is gradually reducing the amount of money it is pumping into the economy, will hold interest rates near zero for a while.